http://www.heraldsun.news.com.au/common/story_page/0,5478,9579081%255E2862,00.html
With reference to the recent look into the Victoria market on vendor finance deals and clamping down on dodgy schemes. What is the general consensus on wraps for the long term. Bad press is going to create a consumer avoidance. Are wraps merely a loophole waiting to be plugged?
Mark
Mark,
Vendor finance & Wraps will continue on in my opinion. What IS NEEDED is regulation.
This is what the Vendor Finance (wraps) Association is presently working on…..
There haven’t been many dodgy schemes, however unfortunately there have been some people out there, who have been too greedy and doing nasty stuff..
Today in Vic we continue to see a demand for wrapped properties. It’s about how you carry on your business that counts….
Wraps are brought down by two things :
1) bad/greedy wrapper intent on bleeding someone dry….
2) Customer who does not do their homework on what they are getting into….It’s all about YOUR ethics… how do YOU carry on a business….
We do it honestly, openly and ethically. We do not hide ANYTHING from the customer, and so far this approach has been very good for us…
We do our homework on the properties we buy to ensure we get a good buy ( without ripping off the seller ).
We had a house we bought below market value, wrapped it at the then mkt value…. i.e. we got our markup profit, and, in actual fact the market continued to move, and our wrappee could actually sell the property today, and make a profit…… to quote Steve ” A WIN/WIN “
There is always bad press on many things in this world…. Long term I see VF/Wraps to be a legitimate AND regulated form of purchasing a house….
Some loopholes DO need to be plugged.. and I hope they are soon…. It’s the VFA and people like Steve who work with government departments to make this a safer alternative….
Cheers
Scott
Pelican Investments
http://www.pelican-invest.comWill Vendor Finance “loop holes” be closed?
No. A major reason is that many farmers sell their land on vendor finace terms, as do owners of very large commercial buildings (say over $20million, for exmple).
Also the paper falsely states that Vendor Financing is illegal in WA. Wrong – all you have to do is pay $500 for a Credit Lisence.
Another media beat up… Might have to start writing letters…
Rgds.
Lucifer_auThanks for your views.
Much appreciated.
Regards –
Mark
I’m not a wrapper, but believe I have a fair understanding of how they work.
A point that Neil Jenman constantly makes is that potentail wrappees cannot afford to get traditional bank loans. I would say this is untrue.
Many reasons people cannot get traditional bank loans:
No deposit
No savings
Irregular or ‘unrecognised’ income
Default on credit file
Discharged bankrupt
etc. etc.Yes, there probably are products out there that will cover nearly all circumstances, but in some instances those credit providers charge a much higher interest (PLUS fees) than do any wrappers.
Cheers
MelUKSaints,
I am not sure it is bad press that is going to change wraps- I think it is the govt making changes to the law.
Whilst the VFA is “regulating” wraps- correct me if I’m wrong here, Pelican, but the VFA could only suggest “guidelines” for its members- not “regulations” right? (I ask this because I am constantly having to work in an environment where the powers that be make “guidelines” instead of policy/regulation, and then those guidelines remain unenforceable).
If the govt regulates, UK, via changes to the Credit Act or whatever, then participants in the industry will have to comply.
I also think that for those lower income earners who have used wraps .. if one looks at the price of properties in 2004, then many of them might not be able to afford a wrap. I would say the market would have to correct significantly downwards, for wraps to remain vogue in 2004.
Mel, I would be interested to see some quantitative research, actually, on the incomes of those who have bought property via wraps. It really seems unchartered territory, and so, we can only speculate on the demography.
Does the VFA have statistics on wrappees, Pelican?
kay henry
Kay,
The VFA aims to have a form of accreditation, and, also compliance with a code of ethics as condition of membership…
VFA isn’t a regulator, no, but it is working closely with them.
You’d have to check with VFA for stats, as I’m a member, not on the leadership committee….
2004 sees wraps steaming along… if you have properties priced at the right level…..
We have sold quite a few this year, and are having trouble keeping up with demand…
Scott
Pelican Investments
http://www.pelican-invest.comMark
I am with Scott. We receive over a dozen applications a week from potential wrappees and have limited the number of introducers we take business from.
Whilst in an ideal world we would lend to all of them ourselves we have strict credit policy and maybe do a deal a week oursleves and another 3/4 on behalf of our investor clients.
Each day i would receive emails from potential investors wanting to get on board and be referred our wrap deals. We just can’t keep up with the numbers and have closed books on that front too.
As Scott mentioned in every industry there will be a few operators that give the industry a bad name. Focus on ethics and keeping your wrappees happy and content. Don’t be greedy and you will build a successful business. We didnt get to 148 properties over night.
Cheers Richard
richard at fhog.com.au
http://www.fhog.com.auThere is no such thing as a problem.
Just a solution waiting to be foundRichard Taylor | Australia's leading private lender
I will thank you all again. This forum certainly helps sort the wheat from the chaff. Having access to you all is bloody marvellous. Look forward to continue reading and contributing to the discussions…
Mark
Dear Mark,
Thanks for pointing out this unhelpful article. Lucifer, you alluded to the need for us to perhaps write some articles so I decided I would. I sent this to the Editor of the paper:Dear Editor, I am disturbed by what seems to be your unbalanced reporting of Vendor Finance arrangements, or ‘Wraps’ in your article ‘Government Wise to Dodgy Property Deals’. While I have not participated myself in providing these or buying using this method, I have studied its development closely, and I see this kind of vendor finance as having an important place amongst home-ownership options. Your article seems to imply condemnation of ‘wrappers’ who buy at standard bank rates then lend at 2% more. These wrappers are covering increased risk, and as such it seems to me to be normal financial practice in terms of the ‘risk vs return’ ratio. Perhaps more to the point, though, is that the well known non-conforming lenders would be charging a further percentage point or two, resulting in a really high-risk situation for the borrower, which often sets them up to fail. It is a relief indeed that there is now a ‘middle of the road’ option that doesn’t either preclude these compromised borrowers completely, or else charge them an unjustifiable rate of interest. Furthermore, my study indicates that vendor finance arrangements offered by these usually small businesses are more flexible with regards to the needs of the borrower and not as ready to foreclose without any consideration as per the reputation of the large non-conforming-loan corporations.
I am also disappointed by the very inadequate analysis of the situation provided by Neil Jenman. He calls vendor financing ‘pure exploitation’ and states that these borrowers ‘cannot afford a loan’. This is too simplistic by far, and completely ignores the circumstances of people who, for example, have no deposit, or no savings, or irregular income, or a default on their credit file, or who may be discharged or undischarged bankrupts. It is superficial to assume that because they are in this situation they have no ability to repay, as there are a myriad of events that can lead to any one of these circumstances. Many wrap deals that I have heard of have involved country properties where payments are less than or equal to city rents. If these potential borrowers have been paying their rent consistently over time, why shouldn’t they obtain access to lending that allows them to break out of the rent trap. I do not deny that there have been some unscrupulous wrap dealers who have given the industry a bad name, but please don’t throw the baby out with the bath water. Have we abandoned the great Australian dream? Surely we need flexible options like vendor finance now more than ever before as the dream slips away from increasing numbers of us. Please be fairer in your presentation of this issue, and don’t limit access to this wonderful opportunity by creating an air of distrust in the mind of the general public.
Sincerely,
(name)I wonder if it will get published? If so, it would be in edited form I guess as it is a bit long. As I am not in Melbourne, I won’t know, so if anyone who is can let me know if they see it, I would appreciate it.I hope it may help the cause anyway.
taurus
well,i dont know much about wrapping,but am “wrap-idly” learning![biggrin] thanx to this site.I think your letter is great,& shouldnt have too much edited,to take away the “essence”. Another way i see wrapping can be used as a win-win, which is what i;m planning,is to help out family members get a home.[inlove][thumbsupanim]
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